At the twelve-month anniversary of the Anti-Monopoly Law's effective date, ALB China investigates how AML practices have developed during the year.
For many new practices and businesses, the first year is usually the most difficult one. However, it's not entirely true when it comes to law firms' antitrust practices, which have seen demand for services and advice going up ever since the country's Anti-Monopoly Law (AML) took effect on 1 August 2008.
During the first year of the new regime's existence, much has been accomplished but more remains to be done. In terms of the legal framework, a series of implementing measures and guidelines have been issued.
Some landmark decisions have been made under the regime, while many more are yet to be finalised and promulgated. Law firms have been actively advising clients on merger control and compliance with the new law, but haven't tapped into the practice's full potential yet.
A number of international firms are enjoying a head-start, as they have established an anti-trust/competition practice in major jurisdictions, such as the EU or US. Leading the pack is magic circle firm Freshfields Bruckhaus Deringer.
The firm's China offices started working on merger control provisions for its foreign clients back in 2003. Its China anti-trust, competition and trade (ACT) practice was formally set up when it transported London ACT practice partner, Alex Potter, to Beijing in November 2007, on the back of the introduction of the new law.
In March this year, Beijing-based ACT counsel Michael Han was elected to partnership. The firm's ACT team currently consists of ten members, led by three partners: Connie Carnabuci in Hong Kong and Nicholas French and Michael Han in Beijing.
"We saw China as a strategically important part of our global ACT practice, and the new AML regime is developing rapidly, so it's sufficiently important for us to have partners on the ground and stay at the forefront of the developments," says Nicholas French, a London-based ACT partner seconded to Beijing recently. He replaces Alex Potter, who headed back to London after 18 months in Beijing.
"Our strategy is to combine our international expertise and experience with local expertise and knowledge ... because although the law is very similar to that of Europe, there are some significant differences."
Since Freshfield's China ACT practice team was set up, it has seen a steady stream of merger control work, including representing the target company in the high-profile US$2.4bn Coca-Cola/Huiyuan deal. This was the first transaction blocked under AML.At the same time, the firm has been instructed by many multinationals to provide compliance services and train legal and business staff.
In addition, large PRC companies that are investing overseas also increasingly turn to Freshfields for antitrust and competition advice in other jurisdictions. At the moment, it is advising China Air on its US$825m acquisition of an additional stake in Cathay Pacific, from CITIC Pacific. A team led by partners Alan Ryan and Michael Han is working closely with the corporate team on the deal, handling competition issues.
A number of other international firms have also relocated partners and senior associates from Europe or the US to build up their anti-trust/competition capacity. Linklaters, for example, relocated Swedish partner Erik S”derlind to Hong Kong last September, to become the first head of competition and antitrust in Asia.
Last April, Lovells' competition law specialist and counsel Kirstie Nicholson moved from Brussels to Shanghai in response to an expected influx of competition-related work.
For many domestic firms, the Anti-Monopoly Law has transformed what was once an ancillary activity into a distinct practice area. Before the AML was introduced, many law firms, particularly those with a strong track record in large cross-border M&A transactions, had already started handling merger control filings for their foreign clients before The Ministry of Commerce (MOFCOM).
Now, they are building a stand-alone AML practice on the foundations they have already laid. Domestic M&A powerhouse legal firm Commerce & Finance Law Offices has set up an AML group consisting of several partners and 10 associates. The group has handled many influential concentration notification filings.
Two recent highlights include advising on Chinalco's US$19.5bn investment into Rio Tinto and China Eastern Airlines' acquisition of Shanghai Airlines. "We plan to grow our AML group in the earn future as compliance demand is increasing dramatically," says Zhang Xinyang, an experienced AML lawyer at the firm.
"The big challenge for a majority of the domestic firms to develop an AML practice, is that there is a lack of experienced specialists in the market. With more cases handled and [when]more precedents become available, this will change step by step," says Zhang.
"As for our firm, the biggest challenge now is how to collect [the] enormous underlying data and evidence, quickly and economically, as clients always have limited resources and abilities."
Landmark case
For firms that are interested in establishing an AML practice, the first 12 months of the regime is an interesting, important and foundation-building year. Over the past year, several key implementing rules and guidelines have been issued to provide guidance on how AML will be applied.
More importantly, there have been three decisions published by the MOFCOM that will set a certain degree of precedent for future merger control practice. "It's been interesting in observing a very limited number of decisions that have been published," says Freshfield's French.
"The three published decisions illustrate that MOFCOM will enforce vigorously under the AML and show that the enforcement agency has become more sophisticated. There are mixed signs, and certainly include some good signs," he adds.
"Development is all directionally right, giving us an idea of the role that MOFCOM will be playing. It's clear that MOFCOM requires a lot of information for merger control filings and it takes things very seriously, but it takes a flexible and creative approach to remedies," he says.
Leading domestic firms, such as Jun He Law Offices, share the same perspectives with their international counterparts. Jun He's lead partner in their AML practice group, Janet Hui, sees the decisions are milestones in the developing history of the AML, with significant impact on foreign companies investing in China as well as M&A law firms.
"After the three decisions were announced, AML has quickly become a very critical issue to the completion of major transactions," says Hui. "If a firm doesn't have the expertise and skills in handling antitrust and competition issues, it may well face the possibility of losing a client that is looking to do a large M&A transaction, for example."
"The need for a competent domestic firm to handle merger control filings is particularly important, because international firms can't file notification before MOFCOM."
Jun He Law Offices has advised clients in many merger control filings, however, it has experienced a slight drop in the number of filings handled this year, mostly due to the effect of the global financial crisis. However, Hui is positive that when more implemented rules are in place and become effective, and M&A activity picks up again, there will be more business opportunities.In addition, Hui's team has been busy with instructions from clients to carry out compliance reviews and mitigate the risk of being investigated or sued.
Currently, eight partners and eight associates in the firm's Beijing head office dedicate the majority of their time to AML practice. Jun He Law Offices will adjust the size of the team, however, according to client demand.
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The new precedents
From 1 August 2008 to the end of June 2009, MOFCOM received more than 100 concentration notification filings, 69% which involved foreign companies. MOFCOM accepted 58 of the filings and 46 reviews have been completed. Under AML, MOFCOM is obliged to publish decisions blocking transactions or imposing conditions, but not other clearance decisions. Only three decisions are available:
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nBev and Anheuser-Busch
On 18 November 2008, MOFCOM approved (with conditions) InBev's US$52bn acquisition of Anheuser-Busch (AB). This is the first published decision since the AML became effective, observing that it is a significant consolidation and that the competitiveness of the new enterprise will be increased.
The decision notes the transaction will give the parties a large combined market share. In order to reduce possible adverse effects on future competition in the Chinese beer market, MOFCOM required InBev-AB to obtain its consent before implementing certain transactions in China. "The InBev decision provides a valuable insight into how MOFCOM is likely to approach future transactions," said Mallesons Stephen Jaques partner, Martyn Huckerby, a Shanghai-based competition and antitrust lawyer. "
According to Huckerby, the decision is significant because it further emphasises the importance of parties consulting and negotiating conditions with MOFCOM, before and after the transaction, to obtain clearance.
"The InBev clearance came at a similar time to the [conditional] US and UK clearances, which suggests that MOFCOM will consider the approach being adopted in other jurisdictions but will reach its decision in a manner that reflects its understanding of the relevant circumstances in China," he says.
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Coca-Cola and Huiyuan
On 18 March 2009, MOFCOM blocked Coca-Cola's proposed US$2.4bn acquisition of Huiyuan in the first prohibition decision adopted under the AML. It was a high-profile case watched closely by the business and legal communities.
There are grave concerns about this decision, mainly because the reasonings in it were very general, and the transaction involved a well-known multinational company and a famous national brand. DLA Piper's Asia head of competition practice, David Cox, points out that the ruling adopted by MOFCOM on Coca-Cola's acquisition of Huiyuan is similar to a decision made previously in Australia. In 2003, the Australian Competition and Consumer Commission (ACCC) opposed the acquisition of Berri Ltd by Coca-Cola Amatil, the Australian Coca-Cola bottler and partly-owned affiliate of The Coca-Cola Company.
In both cases, the regulator's major concern was that Coca-Cola would gain the ability to leverage a dominant position in the carbonated soft drinks market into the juice market.
"This will always be a difficult case and the reasonings adopted by MOFCOM are classic reasonings of [worldwide] competition authorities with similar cases," Cox states. "It clearly shows that AML and competition law has come of age."
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Mitsubishi and Lucite
On 24 April 2009, MOFCOM announced the conditional approval of Mitsubishi Rayon's US$1.6bn acquisition of Lucite International Group. This is the first decision requiring parties to divest a portion of their production capacity as a condition of approval.
MOFCOM accepted the proposal provided by the parties. "The remedies are quite creative," says Nicholas French, partner of Freshfields. "It provided significantly more details than prior decisions and is considered a more valuable precedent for future acquisitions in China," says Jun He Law Offices partner, Janet Hui.
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